Downbeat General Electric profit forecast, but shares rise

  • Earnings guidance missed forecasts
  • Shares 2.84% higher
  • Performance in 2020 and 2021 expected to improve

New 2019 earnings guidance issued by General Electric on Thursday missed forecasts from analysts, but shares were marked 2.84% higher following the release.

The latest stock movement extended the year-to-date gain to value the company at an estimated $90 billion.

General Electric also confirmed that it will use up to $2bn cash in its industrial division as part of a “reset”. Consequently, the first quarter of this year will be the weakest for the company, CEO Larry Culp warned.

“GE’s challenges in 2019 are complex but clear. We are facing them head-on as we execute on our strategic priorities to improve our financial position and strengthen our businesses,” Culp said.

He added that GE expected performance in 2020 and 2021 to be significantly better, with financial results benefiting from operational improvements. Culp also said that actions would be taken to reduce downside risk and create long-term value for shareholders.

GE’s CEO previously vowed that this year would be one of change for the group, which has been struggling recently. A renewed focus on developing the company’s critical power business and finding debt reductions via asset sales and spin-offs would be part of the plan.

Earlier this year, Culp explained: “Simply put, we have too much debt and we need to reduce it thoughtfully and soon.”

The company’s dividend was cut back to one penny last year after a mix of profit warnings and asset write-downs that hurt investor confidence. 

Are we on the cusp of a global recession bigger than the 2008 financial crisis?

The recent rally in US stocks has created an opportunity for investors who suffered massive drawdowns in Q4 2018 to recoup some of their losses. However, many investors have a sinking feeling in their gut that the rally might not last long given the major risks facing the global economy this year.

According to a research report by Deustche Bank Securities’ chief economist Peter Hooper, the three biggest risks to the global economy this year could cause massive losses to investors and consumers alike. The three risks are ‘a no deal Brexit,’ ‘a surge in retaliatory trade hostilities between China and the USA,’ and a massive economic slowdown in China, which would have a massive impact on global economic growth.

Hooper believes that the global economy could witness a recession worse than the great recession of 2007-2008 that followed the financial crisis if all the three major risks actually happened (became reality). Firstly, if the ongoing trade spat between the US and China is not quickly resolved, the outcome could be a mild recession in the US, which would cause a global economic growth decline of about 1% over the following two year period.

Furthermore, rising inflation in China could force the People’s Bank to hike interest rates in order to stem inflation, which would sink the country’s economic growth prospects. The impact of the rate hike would be very similar to that of a prolonged trade war as it would also cause a percentage decline in the global economic growth rate.

There is also the looming threat of a no deal Brexit, which would disrupt trade activities in Europe leading to a half percentage point drop in the rate of economic expansion globally. Currently, the likelihood of all these events taking place is quite minimal, but cannot be ruled out, which is why investors should remain cautious and extremely vigilant to avoid being caught unawares in case these threats occur.

There are numerous risks facing the global economy in 2019 and investors should ensure that their portfolios are well balanced, while minimizing their exposure to the stock market.

stop loss hunting

Stop Loss Hunters – Are you suffering from “FOBSO” – The Fear of Being Stopped Out?

Does this little scenario sound familiar to you: You are following one of your favorite forex pairs. A nice trend is forming of higher highs and higher lows. You decide the time is right to ride this trend and make it your friend. You buy in at 1.25, just below support and place a Stop Loss order just below that to protect your downside. Then you wait for the action to start rising northward. Unfortunately, Mr. Market has other ideas. It hobbles along for bit, and then takes a dive of around 30 pips, just enough to stop you out, and then – you know what happens next – it blasts back up through 1.25 and beyond.

After a few expletives directed at your computer screen, the world at large, and especially at your broker, you begin to calm down. You know that you have been trained to accept what the market gives you, put your emotions aside, and then look for the next opportunity. But, being stopped out before a big run up has a way of ripping at your gut. As forex or stock or whatever trader you have chosen to be, we have all had this happen to us not once, but several times. Veterans, however, know what is truly going on behind the scenes, stopped complaining about it long ago, and actually developed a trading strategy to take advantage of this “dreaded” market behavior, called “stop hunting”.

What are the real causes of stop hunting?

If you are prone to blaming someone else for being stopped out, then the likely target for your screams of derision would more than likely be your broker. How could he do this to me again and again? The fact is that he could get into hot water big time with the regulators and with his customer base if he deliberately posted lower prices before a run up. Price manipulation is not taken lightly by the powers that be. They have complaint follow-up procedures and monitoring services that sound alerts for this type of thing. Yes, you may have seen spreads widen, but there are valid reasons for that, too.

The “culprit”, if we need to use that label, is your hedge fund or big institutional trader that needs to place a large position, many multiples greater than your order, to take advantage of the same trend that you spotted. His major issue, however, is liquidity. If he tries to enter the market with a large order, he knows that the market will bust north, which will cost him dearly. He knows that stop orders are lurking just below support, so he sells first, a moderately sized order that will tend to jerk the market down a bit. He knows that he can then scoop up the stop orders and save a bundle.

But what about the spreads, you ask? The broker is surely in on the “scheme”, isn’t he? Actually, he is not. He is keeping a close eye on the futures market, the forum where he hedges his risk and part of what being a “market maker” is all about. Before key events and even at times when ranging occurs around support or resistance, market participants will withdraw their Buy/Sell orders, thereby withdrawing their liquidity at the same time. Your broker has no choice but to widen his spreads to protect himself. He is taking his guidance from the spreads he can obtain in the futures market. Of course, if he has a habit of acting unethically in your opinion, then you can file a complaint. There are shady brokers out there, but it is not widespread. It may be time for a change.

How do you prevent being stopped out before a big breakout?

If you do have the fear of being stopped out, or “FOBSO” to coin a phrase, then you do have options. If you had been confident that the bottom would not fall out of the market in the above example, then you might not use a Stop Loss order at all. This option, however, is regarded as pure heresy in some circles. You are inviting instant doom, if you go this route. The preferred option is to set a Stop Loss order beyond what would be expected for the situation at hand.

Many traders routinely set Stop Losses at 15 to 25 pips below their entry point. Veterans and smart money folks know this and count on it when applying their various strategies. Choose a wider gap next time, one more tied to the Average True Range indicator. If you manage the size of your positions in line with your Stop Loss, then you might want to consider reducing it a bit, too. The objective is to be safely outside the range of a potential quick down move, such that you win on the way up and achieve a higher reward ratio, as well. Set your “Take Profit” position accordingly.

What kind of trading strategy can be built around stop hunting?

There is one more option, but it has nothing to do with the above scenario. Veterans have learned to see the activity above as a potential “Trade Setup” and have designed an aggressive strategy to take advantage of Stop Hunting scenarios. As a single retail forex trader, we will never be able to chase after Stop Loss orders like the big players in the market. What we can do is notice when the situation is ripe for stop hunting and then prepare to take advantage of the swift jerk up in valuations.

Using the scenario above, you wanted to go long and protect yourself, right around a support level. Here is where patience is a necessity. Watch the candlesticks forming around support. If they move below support, then wait to see if a major price rejection occurs, i.e., the place where stop hunting commences. Go long on the next candle, with stop loss protection. Be sure to cheer when the market goes north. This strategy also works well in a shorting situation by taking the opposite path.

Concluding Remarks

Are you suffering from “FOBSO”? Do you want to fire your broker? Playing the blame game can be fun, but it will not help you become a better trader. You can avoid the pain by widening your Stop Loss order, when you see this type of Trade Setup forming, but you may still lose, if the downdraft is excessive. Otherwise, you can take the offensive. Prepare to trade the jerk back reaction and ride the wave that you wanted to do in the first place. You may still have to place a Stop Loss order, but in this strategy, you will be more concerned about when to take your profit.

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Tesla Logo

Tesla Set to Deliver Model 3 to China Buyers in March Despite Price Cuts

Tesla Inc. (TSLA.O) has revealed earlier today that it will begin the delivery of its Model 3 cars to customers in China in March. This latest development tallies with the timeframe that the chief executive of the company Elon Musk tweeted about towards the end of last year.

Model 3 Price Cuts might not Affect TSLA Price Negatively

The cut in the price ofModel 3 cars might not affect the price of the company’s stock. In October2013, iPhone maker Apple Inc. (AAPL.O) made a similar move and slashed theprice of Apple’s iPhone 8 by up to a fifth so as to attract more customersfollowing sluggish demand for the phone in China.

Even though it was temporary, Apple was able to sustain massive growth in China in the third quarter of the year. Following the announcement by Apple, the price of AAPL surged from $216.80 to trade at $218.09. The reduction in the price of Model 3 cars might also lead to an increase in demand for the car and this could help boost the price of the stock.

Model 3 to be sold at $72,000

The California-based firm had earlier made plan to accelerate the sales of its cars in China but has been affected by the trade tension between Washington and Beijing. In their statement, the company stated the starting price for a Model 3 in China had been set at 499,000 yuan ($72,000).

The price mentioned above isn’t the original price for the Model Car. The company has to cut the price last month, making it the third time in two months that Tesla had to adjust prices in China due to the ongoing trade tension.

Tesla made a similar move for its Model X and Model S prices in China as they were slashed by 12 to 26 percent back in November.

Tesla looking to open a plant in Shanghai

Tesla has also opened a tender process as it seeks permission to build a $2 billion plant in Shanghai called a Gigafactory. A report by Reuters last month revealed that one of the contractors set to work on the project has started purchasing materials.

Tesla announced that it is planning to start by manufacturing roughly 3,000 Model 3 vehicles per week at the plant while also localizing both the manufacturing and the supply chain. The factor which is Tesla’s first in China is a big bet for the company as it looks to become a leading player in the automobile market. It is, however, facing tough, and increasing competition from companies in China as its earnings have been negatively affected by the increased tariffs on U.S. imports.

The Q4 report released by the company yesterday saw them reveal that they have missed expectations for deliveries and will be cutting its vehicle prices by $2,000 in the US. Even though it delivered 90,700 vehicles in the three months to December, it now has a total of 7,000 Model 3 cars unsold.

The quarterly report led to the shares of drop over the past 24 hours, and the announcement that it has cut the price for the Model 3 cars to be delivered to China will most likely hit the stock even harder. TSLA is currently trading at $300.36, having lost 9 points so far today.

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computer Chip

Chipmaker Qualcomm’s Case with the U.S FTC Goes to Trial

The U.S. Federal Trade Commission’s has an antitrust case against chipmaker Qualcomm after alleging that the company has abused the monopoly on mobile chip technology. The case between the two will be going to trial today, and the outcome is expected to have a major impact on the smartphone sector.

QCOM Price Could Tank

The FTC’s case against Qualcomm going to trial isn’t a good thing as it could affect the price of their stock. On March 26, 2018, the agency announced that it was investigating Facebook regarding its privacy practices after reports surfaced on the Cambridge Analytica case. The announcement by FTC to investigate Facebook saw its shares lose more than five percent, and dropped below the $150 for the first time since July 2018.

Qualcomm is now facing a trial against the FTC and this would likely see the stock drop below its current price of $56.45. The company could also face a heavy fine similar to what it experienced in Europe and this would likely see its price fall even deeper. QCOM dipped from $68.60 to $65.03 after the company was fined by EU regulators.

Apple Looks on with Interest

The case will be handled by U.S. District Judge Lucy Koh, in San Jose, California. If the FTC comes out victorious, then the chipmaker will be forced to make amends to its practices for licensing a trove of patents to some tech manufacturers such as Apple Inc. (AAPL.O).

The case has generated a lot of interest within the tech industry as Apple also has a pending lawsuit making similar claims against Qualcomm. According to Canaccord Genuity analyst T. Michael Walkley in his research note, the outcome is expected to have a major impact on the settlement discussions that will take place between the two companies.

Even though Qualcomm is regarded as one of the leading smartphone chip manufacturer, most of its profits are obtained via licensing patents to other companies.

The lawsuit by FTC was first filed in 2017, with the agency claiming that Qualcomm practices an anticompetitive “no license, no chips” policy which enabled the company to supply processors to phone manufacturer only if they abide by the inflated licensing terms presented to them.

FTC further claimed that Qualcomm bullied Apple into agreeing on an anticompetitive deal. The deal will see the iPhone manufacturer received financial rebates if they buy chips only from Qualcomm. This effectively affects other competing chipmakers such as Intel Corp (INTC.O).

Qualcomm has however denied such allegations and claimed that it became a dominant chipmaker via technical leadership, adding that the rates for its patent licensing were reasonable considering the groundbreaking research and development efforts.

According to the court filing on December 31, Qualcomm stated that the agency “seeks to enjoin legitimate, procompetitive business practices that facilitated the growth of a phenomenally successful industry that bears all the hallmarks of healthy and vigorous competition,”

Qualcomm has been in the limelight over the past few months as regulators have investigated its activities in South Korea, China, Taiwan, and Europe. The company accused Apple of playing a role in the regulatory actions taken against them.

In January 2018, Qualcomm was handed a 997 million euro ($1.14 billion) fine by European antitrust officials. The regulators accused the company of paying billions of dollars to Apple to ensure that they don’t purchase chips from its competitors. Qualcomm has however appealed the fine placed on it.

The two tech companies have been locked in a global legal battle. After Apple filed its antitrust case, Qualcomm replied by accusing the iPhone maker of using patented technology without having the necessary permission.

Qualcomm was victorious in the rulings last month, with Apple asked to limit the sales of iPhone in both Germany and China.

Apple has embarked on a slight recovery following the massive drop it experienced this week. Qualcomm is meanwhile 0.65 points up for the day and losing the case against the FTC will most likely affect QCOM prices negatively.

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